FXStreet (Mumbai) - The EUR/USD pair is trading at its lowest in seven months, while the short duration German 2-year yield fell to a fresh record low ahead of the European central Bank rate decision, which will be followed by the Draghi’s press conference. Deposit rate cut, additional QE priced-in? The EUR/USD hit a fresh seven month low of 1.0552 and the German 2-year yield hit a fresh record low of -0.451%. The yield trades well below the current deposit rate (-0.20%). Assuming the deposit rate cut stands at -0.30% (10 bps cut expected), the 2-year yield is still 15 bps lower. So it appears the bond markets may have priced-in both – deposit rate cut and extension/expansion/front loading/diversification of the QE program. ECB to keep economic forecasts unchanged – Bloomberg A Bloomberg report released yesterday said the bank is likely to keep its economic forecasts largely unchanged; expect a minor downward revision of the inflation forecasts. This is the third time Bloomberg released an article carrying a hint of the possible ECB action a day before the decision. On the last two occasions – Sep 2012 (OMT decision) and Jan 2015 (QE program) – Bloomberg published articles hinting at the ECB’s intended course of action. If history is anything to go by, then the ECB could indeed leave its economic forecasts unchanged as pointed out by the Bloomberg article. That would open doors for “sell the rumor, buy the fact trade” in EUR pairs. 45-minute trading window A short squeeze could be seen following a cut in the deposit rate by 10 bps during the 45-minute gap between the rate decision and the ECB presser. Further moves depend on the magnitude of the tweak (if there is one) in the QE program and Draghi’s tone. Only an overtly aggressive ECB could see the EUR tank, otherwise, the likelihood of a quick fire drop followed by a bout of profit taking on the EUR shorts is high. It is worth noting that the speculators are heavily short on the EUR. The net short positions are at the largest since the week of May 12, 2015. An extreme bullish/bearish positioning is usually at risk of a sharp reversal. EUR/USD Technical Levels At 1.0552, the immediate support is seen at 1.0463 (yearly low), under which the pair could test 1.0427 (127.2% fib expansion of July 2008 high-Oct 2008 low-Nov 2009 high). A break lower would expose the long term trendline support at 1.0390 (trend line drawn by joining Oct 2008 low-June 2010 low). On the other side, 1.0636 (previous day’s high) could offer resistance, which, if taken out could shift risk in favour of a rise to 1.0763 (Nov 19 high). For more information, read our latest forex news.